In bid to provide the country's $21 billion startup industry a serious go at listing, capital market regulator Securities and Exchange Board of India (Sebi) may provide further relaxations to the proposed framework. According to sources the regulator could considerably bring down the entry barrier for investor and also dilute the disclosure requirements for companies wanting to list on the soon-to-be-introduced listing and trading platform.
Sebi is planning to set the minimum application size at Rs 5 lakh, half of what it has proposed in the discussion paper 'Alternate Capital Raising Platform' issued in March. Additionally, the minimum trading lot size could be reduced to Rs 3 lakh from the proposed Rs 5 lakh.
The disclosure requirement would not require startups to disclose objects of issue if money raised for gross commercial purposes. Basis of issue price would require disclosures as deemed fit by the issuer, disclosure of litigation depending on its materiality.
"The regulator has collected and analysed all the public comments and some of them have been accepted by the board. The regulations are likely to be cleared in the next board meeting which is slated for end-June," said a source close to the developments
These aspects were deliberated upon in the recently conducted meeting of the Primary Market Adviosry Committee (PMAC). Sebi had come out with a discussion paper for startup listings in end-March and had invited public comments till April 20.
On the lines of The Jumpstart Our Business Startups Act or JOBS Act in the US, Sebi has proposed a separate platform for listing of startups with relaxed regulatory framework. The framework, however, will be only for the seasoned institutional investors and retail or small investors will be kept out through high entry barriers.
"The Rs 10 lakh application size and Rs 5 lakh trading lot was set to keep retail investors from investing in these issues. However, as the retail investor generally is not categorized by investment of more than Rs 2 lakh we are mulling to reduce the two," said a source.
Sebi has already prescribed a lenient disclosure regime in the discussion paper, however, it could be tweaked further, sources indicated.
For instance, a company planning to list on the start-up platform may not have to carry the fund raising disclaimer in its advertisements. A company listing on the main exchange has to compulsory inform the public that plans to raise capital.
Sharad Sharma, co-founder, iSpirit, a technology think-tank that worked with Sebi on the 'Alternate Capital Raising Platform' discussion paper says as the platform is not meant for general public so disclosures requirement need not be very stringent.
"As the IPO of these companies will not be targeted at the public at large, therefore they can be exempted from the ad-related disclosures," he said.
The discussion paper had proposed to keep the lock-in for promoters and non-promoters at 6 months this could also be relaxed to 'no lock-in'.
Making a case for relaxation of lock-in Sharad says, "Typically under the current framework a promoter gets 20 per cent equity capital, while the rest is leveraged money borrowed from banks. So the essentially the lock in requirement is to safeguard the lenders by ensuring that the promoters don't run away after listing. If you look at any of the new-age tech companies, there is hardly any debt on their books. Also, they are professionally managed companies and most of the promoter equity is sweat equity. Therefore, it doesn't make any sense to treat them as your typical promoters and subject them to a lock-in period post-listing,"
Currently, tech companies account for less than 15 per cent of the Indian capital market compared to more than 40 per cent in the US.
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